Insurers succumb to workers' comp losses

The carriers that are leaving say the decision is not related to the state market. Still, those that remain argue that a 41 percent reduction in rates since the state Legislature passed workers’ comp reform laws in 1995 has cut too far.

"We are losing a lot of money," said Allen Uyeda, president of First Insurance Co. of Hawaii Ltd., which provides workers’ comp insurance as well as home-owners coverage in Hawai‘i. "We are going to have to take a hard look at the accounts we insure and tighten our underwriting standards."

Other insurers are pushing some customers into higher-priced rate plans and eliminating deep discounts for preferred customers, moves that could result in premiums rising between 10 percent and 15 percent, according to one expert.

"My insurance agent actually called to tell me that my rates were going up this year despite having a very good record," said Teena Rasmussen, co-owner of Paradise Flower Farms in Kula on Maui.

Similar rate increases are being felt across the state as business owners big and small get their annual policy renewals.

The rate increases, pullbacks by some carriers, and workers’ comp losses suffered by carriers last year are combining to make 2001 what some are calling one of the most difficult insurance markets in years for Hawai‘i businesses.

Rising losses drive

Insurers say rising losses are driving the effort. But exacerbating the problem is the pullback of several carriers from the Hawai‘i market.

Fremont’s family of insurance companies said it is closing its Hawai‘i businesses as part of a corporate restructuring program, and Australian-owned HIH America Insurance Co. of Hawaii Inc., the state’s fourth-largest provider of workers’ comp coverage, is also closing its doors.

Meanwhile, Eagle Insurance Group, which has a 6.8 percent share of the Hawai‘i workers’ comp market, has reduced its Hawai‘i presence and focused mostly on specialty products such as marine insurance.

"What is happening is there is less capacity writing workers’ comp insurance, so this is giving insurers the ability to be a lot choosier," said Chad Karasaki, a Honolulu-based insurance broker with Marsh USA. "For the higher-hazard type business, there is going to be a significant change in the prices they have been used to for the last five years."

The changes signal an end to the discounts insurers have offered businesses through their best pricing plans approved by the state, and could leave businesses paying more for the same coverage this year.

According to a recent survey by the National Federation of Independent Business, which represents about 4,000 small businesses around the state, rising workers’ comp rates was the No. 1 concern of small-business owners this year.

"I have been getting a lot of calls recently from businesses that are seeing their premiums go up for no apparent reason. They are asking me if there is anything I can do," said Bette Tatum, the federation’s Hawai‘i director.

State Insurance Commissioner Wayne Metcalf said he doubts there is a pending workers’ comp crisis. "From the indications we have, this represents nothing more than the ordinary correction the industry engages in periodically," Metcalf said.

"The insurance industry will always act in their own best interests. Whenever expectations for a given year do not meet their projections, they tend to shed their risks," Metcalf said.

Metcalf said he plans to review insurers’ workers’ comp figures next month to see if there is data to support a rate adjustment.

Cost per claim rising

According to the National Council on Compensation Insurance, the insurance industry in Hawai‘i paid out $1.32 for every premium dollar collected in 1999, the last year for which data is available.

Carolyn Pearl, state relations executive for the council, said the cost per claim is going up nationwide, but the frequency of claims continues to decline. And that has some Hawai‘i insurers worried. Some say there are indications that the decline in filings is starting to flatten out, which likely will increase their losses in the months ahead.

"In a nutshell, what it means is the decline cannot continue indefinitely. We want to make sure when a change is indicated, we will make a filing with the (Hawai‘i insurance) division," Pearl said.

Some belt-tightening by insurers has begun to send some higher-risk companies to so-called "providers of last resort."

"Yes we have seen some evidence of that. We are seeing more applications," said Bob Dove, president and chief executive officer for the privately-operated Hawaii Employers’ Mutual Insurance Co. (HEMIC), the state’s designated insurer of last resort for companies unable to find coverage elsewhere.

"Many of the losses other carriers have been experiencing in workers’ comp has been due to the heavy discounting they have been engaged in," Dove said. "We will see some additional tightening of the market this year, although I don’t think we will be in a crisis situation."

Dove said his business increased 35 percent last year, but he said he is not sure how many of those new applications are refugees from other insurers.

"Any time you see HEMIC growing, you bet the market is hardening," said Neal Kunde, senior vice president for underwriting with HIH Insurance, which is pulling out of Hawai‘i’s workers’ comp market.

‘We are way in the red’

In 1995, the Legislature made sweeping reforms to workers’ compensation laws, primarily by tying workers’ comp medical fees to Medicare rates, thereby cutting fees to medical providers. Hawai‘i went from having one of the nation’s highest workers’ comp medical fee schedules to one of the lowest.

Insurers profited, but when the state rate cuts followed, insurers say losses mounted.

"Obviously, from an industry standpoint this is reminiscent of the early ’90s," said Allen Uyeda, president of First Insurance Co. of Hawaii Ltd., referring to a period when insurance carriers were pulling out of Hawai‘i and workers’ comp rates climbed 100 percent or more.

"We are way in the red," Uyeda said of his workers’ comp business last year. "Losses alone are exceeding premiums and are significantly worse than we projected."

Those losses, coupled with a volatile stock market erasing investment returns, has some insurers saying they will not meet their expected profits this year, although actual figures still are being calculated.

Metcalf said that while insurers may have had a bad year, they have been hugely profitable in Hawai‘i over the past decade and will not let one poor year drive them out of the market.

"Not all companies are doing this," Metcalf said. "It’s probably a good time for businesses to shop around."

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